Introduction
KGI Securities (Singapore) Pte. Ltd. has released an in‐depth update on Food Empire Holdings Ltd.
(FEH SP/ F03.SI), providing a comprehensive look into the company’s performance and outlook for the near to mid-term.
The report highlights robust growth across its core markets in South-East Asia and South Asia, alongside significant expansion
efforts in production infrastructure and marketing initiatives. Despite facing headwinds such as rising raw material costs and
FX pressures, the company remains positioned to benefit from resilient consumer demand, capacity enhancements, and strategic partnerships.
Resilient Growth in Core Markets
Food Empire Holdings has experienced sustained sales growth in 1H24, driven by strong consumer demand in both South-East Asia and South Asia.
The company reported volume growth on a yearly basis, underpinned by successful brand-building efforts, particularly in Vietnam where it has been
able to capture an increasing market share. Moreover, a notable coffee consumption boom in South Asia continues to fuel demand.
Increased Production Capacity in Malaysia
The group has recently ramped up its production capacity by finalizing the expansion of its non-dairy creamer production facilities in Malaysia.
Commercial production commenced on April 1st, 2024. This expansion is anticipated not only to boost production volumes over the next 24 to 36
months but also to drive higher revenue in the region. In addition, the company is building a second snack production factory in Malaysia, set to
be operational in the first half of 2025, and a coffee mix production facility in Kazakhstan, which is expected to be completed by the end of 2025.
Challenges: Rising Input Costs and FX Headwinds
Despite positive sales performance, Food Empire faces challenges that include rising coffee prices and currency headwinds. Coffee prices increased from
an average of US\$175 per pound in 1H23 to levels around US\$240 per pound, with peaks nearing US\$247 per pound in recent months. This surge, driven
by weather-related concerns in key producing regions, is resulting in price disruptions as retailers rebalance inventories.
Furthermore, the ongoing strength of the US dollar—propelled by a prolonged high‐interest rate environment in the United States—has impacted revenue growth,
particularly in markets such as Russia, Ukraine, Kazakhstan, Vietnam, and India where local currencies have depreciated against the dollar.
The weakened Ruble, for instance, has contributed to lower YoY revenue growth for the Russia market when adjusted for FX.
Financial Performance and Key Operating Statistics
Food Empire Holdings reported a revenue of US\$225.2 million in 1H24, marking a 13.6% increase YoY compared to US\$198.2 million in 1H23.
This robust performance was primarily aided by the rapid growth seen in its South-East Asia (34.8% growth) and South Asia (36.0% growth) markets.
However, the company experienced a 12.8% decline in net profit after tax, primarily due to lower profit contributions from its Russia market amid
pricing disruptions, higher ingredient costs, and increased operating expenses. In local currency terms, revenue growth remained strong across all key markets,
underscoring the resilience of consumer demand even in a challenging global environment.
Detailed financial metrics include:
Revenue: US\$398.4mn in 2022, US\$425.7mn in 2023, with forecasts of US\$465.1mn in 2024F, US\$516.3mn in 2025F, and US\$570.5mn in 2026F.
PATMI: Decline from US\$26.6mn in 1H23 to US\$23.2mn in 1H24.
EPS: Reported at 15.2 cents in 2022 with a slight decline in 2023; forecast EPS trends indicate a recovery to 16.2 cents in 2025F.
Dividend Yield: Increasing, with a notable yield of 10.3% expected for 2024F.
Valuation and Analyst Recommendation
KGI Securities maintains an OUTPERFORM rating on Food Empire Holdings, with an unchanged target price (TP) of S\$1.35. Their valuation approach combines a
Discounted Cash Flow (DCF) model—with a terminal growth rate set at 2% and a WACC of 10.0%—and a Comparable Multiples Valuation based on an average
industry price-to-sales multiple of 0.83x. The blend of these methods supports a positive outlook on the stock’s performance over the next 12 months.
Strategic Partnerships and Marketing Initiatives
In a move aimed at accelerating expansion, Food Empire Holdings recently established a strategic partnership with Ikhlas Capital Singapore Pte. Ltd.
Under this partnership, Ikhlas Capital is set to inject an initial capital of US\$40 million into a dedicated special purpose vehicle. This vehicle
will potentially hold or have the option to hold a portfolio of business operations spanning the company’s ventures in both South-East Asia and South Asia.
The investment is structured as a 5-year redeemable exchangeable note bearing an annual interest rate of 5.5%, subject to final definitive terms.
On the marketing front, the company has significantly ramped up efforts, particularly in the Vietnamese market, by expanding its sales force and launching
a series of both direct and indirect sales, marketing, and promotional activities across traditional and modern platforms. These initiatives have successfully
broadened its market share and fostered strong consumer loyalty, ensuring sustained robust demand despite increased costs.
Future Capacity Expansion and Growth Plans
The outlook for Food Empire is strongly connected to its strategic expansion plans. In addition to the new non-dairy creamer plant in Malaysia, the company is
constructing another snack production facility in the same country to further augment its capacity. Moreover, the construction of a coffee mix production facility in
Kazakhstan signals the company’s expansion into Central Asia. Such capacity increases are anticipated to significantly bolster future revenue streams and profitability,
driving the group towards long-term growth.
Share Buybacks and Strong Cash Position
A notable aspect of the company’s strategy is its commitment to returning value to investors through share buybacks. In FY24 YTD, Food Empire Holdings executed
share buybacks totaling 6.93 million shares. With a robust cash position reported at US\$75.8 million against a total debt of US\$38.4 million, the company’s
strong liquidity facilitates future expansion and potential buybacks. This financial strength underpins the company’s capacity to sustain growth while managing
operational challenges effectively.
Financial Summary and Key Ratios
The report also provides extensive financial details, including income statements, balance sheet overviews, and cash flow analyses for the years 2022 through
forecasted 2026. Key ratios discussed include:
Net Profit Margin: 15.1% in 2022, 13.3% in 2023, with forecasts showing a recovery to 11.9% in 2024F and gradual improvements thereafter.
ROE and ROA: ROE stands at 21.8% in 2022 and decreases slightly over the forecast period, while ROA shows a similar trend.
Net Debt/ (Net Cash) Gearing: The company improved its gearing from (30.6%) in 2023 to an expected (17.9%) in 2024F, signaling strength in its balance sheet.
Dividend Per Share (DPS): Increasing from 2.2 SGD cents in 2022 to an expected 10.0 SGD cents in 2024F.
Price/NAV Ratio: Gradually decreasing from 1.4x in 2022 to an anticipated 1.2x in 2024F, which underlines the potential undervaluation.
Conclusion
In summary, Food Empire Holdings Ltd. continues to demonstrate resilience with double-digit sales growth driven by strong market demand despite macroeconomic headwinds such as
rising coffee prices and a robust US dollar. Strategic infrastructure expansions, dynamic marketing initiatives, and a strategic partnership with Ikhlas Capital further position the company
to capture long-term growth opportunities across multiple Asian markets.
With an OUTPERFORM recommendation and a maintained target price of S\$1.35, the outlook for Food Empire remains optimistic, supported by its strong financial profile and tactical operational moves.
Investors and market participants are likely to see continued healthy demand, robust cash generation, and significant future revenue growth driven by planned capacity enhancements.
